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Dishonour of cheque issued by company - Cheque signed by Secretary of company who ceased to be Secretary when cheque was dishonoured - Prosecution cannot be launched against Secretary as he was no more incharge and responsible to the company

KERALA HIGH COURT

Before :- R. Basant, J. Crl.R.P. Nos. 85 of 2006 and 86 of 2006

IMPORTANT

Dishonour of cheque issued by company - Cheque signed by Secretary of company who ceased to be Secretary when cheque was dishonoured - Prosecution cannot be launched against Secretary as he was no more incharge and responsible to the company.

A. Negotiable Instruments Act, Section 138 - Negotiable Instruments Act, Sections 141 and 138 - Cheque signed by Secretary and President of Co- operative Society - Dishonour of cheque when signatory (Secretary) ceased to be Secretary of Society - Prosecution cannot be launched against the ex- secretary, as he was no more incharge and responsible to company when offence was committed i.e. date of dishonour of cheque - Date of commission of offence is the date when cheque is dishonoured.[Paras 14, 16 and 18] B. Negotiable Instruments Act, Section 138 - Criminal Procedure Code, Section 357 - Negotiable Instruments Act, Section 80 - Dishonour of cheque - Accused directed to pay compensation of Rs. 4.71 lakhs alongwith interest at the rate of 6% - Payment of interest is permissible under Section 80 of N.I. Act.[Para 33] C. Negotiable Instruments Act, Sections 138 and 141 - Vicarious liability - Cheque issued by a company - Dishonour of cheque - The person who signed the cheque will be a person in charge of and responsible to the company for the conduct of its affairs and would consequently by personally liable under Section 141 of the N.I. Act read with Section 138 - A signatory to the cheque can be held to be a person liable under Section 141.[Paras 12 and 13] D. Negotiable Instruments Act, Sections 139 and 138 - Legally enforceable liability - Dishonour of cheque - Accused making part payment - Contention of accused that cheques were not issued for legally enforceable debt or liability cannot succeed in the circumstances - Contention not tenable.[Para 8] E. Negotiable Instruments Act, Section 138 - Dishonour of cheque - Date of commission of offence would be when cheque is returned unpaid by Bank - Cause of action for prosecution will arise only when the period stipulated in the proviso elapses without payment.[Paras 22, 23 and 24] F. Criminal Procedure Code, Sections 421 and 431 - Negotiable Instruments Act, Section 138 - Criminal Procedure Code, Section 357 - Dishonour of cheque issued by a company - No sentence of imprisonment can ever be imposed on a company (a non-natural fictional person) - Company can, however, be directed to pay compensation under Section 357 Cr.P.C. - Held, power under Section 357(3) Cr.P.C. can be invoked against a non-natural person even when imposition of a substantive sentence of imprisonment is impossible - Amount of damages can be recovered under Section 421 read with Section 431 Cr.P.C. 2005(2) RCR(Crl.) 913 (SC) : 2005(2) Apex Criminal 176 (SC) relied.[Para 31] G. Criminal Procedure Code, Section 357 - Award of compensation - Power under Section 357(3) can be invoked only when the courts choose to impose a sentence of which fine does not form a part.[Para 31] H. Negotiable Instruments Act, Section 138 - Dishonour of cheque - Offence is committed when cheque is dishonoured - Cause of action for prosecution will arise only when the period stipulated in the proviso elapses without payment.[Para 18] I. Negotiable Instruments Act, Section 138 - Dishonour of cheque - Two accused were liable for the offence - Prosecution of only one accused - No advantage can be derived by accused facing prosecution. [Para 27]

ORDER

R. Basant, J. - What precisely is the offence under Section 138 of the Negotiable Instruments Act ? On what date can the offence be held to be committed ? These questions arise for consideration in these revision petitions which are directed against the concurrent verdicts of guilty, convictions and sentences imposed in two separate prosecutions between the same parties under Section 138 of the Negotiable Instruments Act.
2. The complainant in both these prosecutions is a Co-operative Society. The first accused in both cases is also a co-operative society. The second accused is the president of the first accused co-operative society, a named individual. The third accused is arrayed with the description that he is the secretary of the first accused Co-operative society. It is significant that the complaint is not against an individual acting as the Secretary. The third accused is shown as the Secretary of the Society. The incumbent functioning as the Secretary is not named as the third accused in either prosecution.
3. The prosecutions relate to four cheques for a total amount of Rs. 5,21,147/-. The complainant contended that the cheques were issued for the due discharge of a legally enforcible debt/liability. The same were dishonoured on the ground of insufficiency of funds. Notice of demand was duly issued. No payment was made. It is in these circumstances that the complainant came to the court with two separate complaints under Section 138 of the N.I. Act. Three instances of dishonour were brought in one case whereas the fourth was brought in as a separate complaint. Separate trials were held. In the prosecution relating to three cheques, the complainant examined himself as PW1 and the Manager of the Collecting Bank as PW2. Exts.P1 to P8 were marked. The accused examined Dws 1 and 2. No documents were marked on the side of the accused in that case.
4. In the second case relating to one cheque, the complainant examined the Secretary of the Co-operative Society as PW1 and the Manager of the drawee Bank as PW2. Exts.P1 to P6 were marked. The accused examined Dws 1 and 2 and proved Exts.D1 and D2. Both cases as well as both appeals were disposed of by common judgments. The courts below concurrently came to the conclusion that all ingredients of the offence punishable under Section 138 of the N.I. Act have been established. Accordingly, they proceeded to pass the impugned concurrent judgments. The trial court had found that the third accused is not guilty and had acquitted him in both cases. Accused 1 and 2, the Co-operative Society and its President are the petitioners before me. They were the appellants before the appellate court.
5. Called upon to explain the nature of the challenge which the petitioner wants to mount against the impugned concurrent judgments, the learned counsel for the petitioners raises the following four grounds:

(i) The then Secretary of the first accused Society had not signed the cheque and hence the cheques were not duly executed cheques.

(ii) The cheques were handed over to the complainant Society only as security without the signature of the Secretary and such cheques were misutilised by the complainant.

(iii) The prosecution of accused 1 and 2 without arraying the then Secretary who allegedly signed the cheques along with the second accused is at any rate, bad in law in as much as the second and the third accused must be held to have joint and several liability under Section 141 of the N.I. Act.

(iv) The sentence imposed is at any rate excessive.

6. All the four cheques have been marked before the courts below. The cheques show that the second accused/President of the Society and the then Secretary of the first accused Society had signed the cheques. There is no dispute that the President and the Secretary are the persons competent to sign the cheques on behalf of the first accused. The contention is that the cheques when they were handed over did not contain the signature of the then Secretary. Only the second accused had signed the cheques. In short, the first contention is that the cheques were not duly executed by the then Secretary on behalf of the first accused.
7. Less said about this contention the better. The cheques were not returned by the Bank on the ground that the signature of the Secretary does not tally with the specimen signature available in the bank. It is too much to assume that the complainant would have forged the signature of the then Secretary in the four cheques and presented the same for encashment. At any rate, absolutely no satisfactory indications are available to probabilise, much less to establish, the said contention. This contention raised has no legs to stand on and must therefore fall to the ground.
8. The second contention raised is that the cheques were not issued for the due discharge of any legally enforcible debt/liability. They were handed over to the complainant with the signature of only the second accused (without the signature of the then Secretary of the Society) solely for the purpose of accounts. It was never intended or expected that the cheques will be presented for encashment. I have already come to the conclusion while considering the first contention that the plea that the cheques were not signed by the then Secretary cannot succeed. The cheques have been held to be signed by both the authorised signatories that is the second accused, the President and the then Secretary. Once the execution and handing over of the cheques are proved, the presumption under Section 139 of the N.I. Act also arises. No worthwhile attempt has been made to dislodge the presumption under Section 139 of the N.I. Act. Moreover, it is not disputed that an amount of Rs. 1,00,000/- has been paid in partial discharge of the liability. In these circumstances, the contention that the cheques were not issued for the due discharge of any legally enforcible debt/liability cannot also succeed.
9. The learned counsel for the petitioner has trained all his guns on the challenge on the third contention. The counsel contends that the present Secretary, who represented the first accused and appeared as the third accused in these prosecutions is admittedly not the one who signed the cheques in question. The then Secretary was not the Secretary of the Society when the cheques were dishonoured by the bank nor was the present third accused who represents the first accused society, the signatory in the said cheque. The counsel therefore contends that the one who signed the cheques as the Secretary is a necessary party to this proceedings. In as much as the said person - second signatory - the then Secretary has not been arrayed as an accused, prosecution of the second accused/President is not proper or justified. The President is also hence entitled to the benefit or advantage arising from the omission of the complainant to prosecute the then Secretary/signatory. The second accused/President may also in these circumstances be acquitted. This, in short, is the third contention raised.
10. The offence under Section 138 of the N.I. Act without dispute is committed only by the drawer of the cheque namely the first accused. The second and the third accused or the signatories to the cheques are not the drawer in respect of the cheques. They are only persons authorised to operate the account on behalf of the drawyer. They are not liable principally as drawers under Section 138 of the N.I. Act. The account is not maintained by them but it is maintained by the first accused. The signatories to the cheques can be arrayed as accused and prosecuted successfully only with the aid of Section 141 of the N.I. Act. The question then is whether the signatory to the cheques was the person in charge of and responsible for the conduct of the business of the first accused society on the date when the offence was committed. The next question that arises will be whether the omission to prosecute such person also can deliver any advantage to the accused.
11. A reference to Section 141 of the N.I. Act appears to be crucial and vital. I extract the same below :

"Offences by companies :- (1) If the person committing an offence under Section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly :

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly". (emphasis supplied)

A person can be made liable under Section 141(1) of the N.I. Act for an offence committed by the company only if "at the time the offence was committed he was in charge of and responsible to . the company for the conduct of the business of the company". The company as well as such persons shall then be deemed to be guilty of the offence and can be prosecuted.
12. The person who has signed the cheques will undoubtedly be a person in charge of and responsible to the company for the conduct of its affairs and would consequently be personally liable under Section 141 of the N.I. Act read with Section 138. If there be any surviving doubts on this aspect, we need only consider the answer to question (c) by the Supreme Court in SMS Pharmaceuticals Ltd. v. Neeta Bhalla, 2005(4) RCR(Crl.) 141 : 2005(3) Apex Criminal 229 (SC) : [(2005) 8 Supreme Court Cases 89]. In paragraph 10(c) in that decision, it has clearly been held that a signatory to the cheque can be held to be a person liable under Section 141.
13. Section 141 makes persons other than the company personally liable for the offence under Section 138 of the N.I. Act only if they were in charge of and responsible for the company for the conduct of its affairs at the time the offence was committed. This calls for ascertainment of the date on which the offence is committed. There is no dispute in this case that though the said person who signed the cheques as the Secretary was the Secretary on the date when the cheque was signed, she had ceased to be the secretary by the time the cheques were dishonoured by the bank. The courts below took note of the fact that the Secretary who signed the cheques had not been arrayed as an accused. The present Secretary arrayed by virtue of his office as accused No. 3 was also not convicted as the prosecution of the third accused was in the name of the office of Secretary and not any individual in his personal capacity. The third accused represented the first accused and was again shown as the third accused by virtue of his office. It is in these circumstances that the third accused was not convicted. The acquittal of the third accused has now become final without challenge.
14. The only question is whether the omission to prosecute the signatory/Secretary can deliver any advantage to the petitioner. This in turn calls for a decision of the question whether the signatory has personal liability under Section 141 if such signatory has ceased to be a Secretary on the date when the cheque was presented for encashment and dishonoured. Such person/signatory will be liable only if he was in charge of and responsible to the company for the conduct of his affairs on the date when the offence was committed. On what date the offence was committed is the necessary next question. This would oblige the court to ascertain what precisely is the offence under Section 138 of the N.I. Act.
15. I have adverted to the same question in the decision in Bhaskaran Nair v. Abdul Kareem [2006(4) KLT 48] in paragraph 9 of the said judgment. The question was considered and answered in the following words.

"A fundamental question arises. What is the offence under Section 138 of the N.I. Act ? The plain reading of the body of Section 138 can leave behind no doubt that the offence is dishonour of the cheque issued for the discharge of liability of a specified nature on the grounds specified in the Section. That is the offence. Proviso deals only with certain formalities to be complied with before a successful prosecution can be launched. They do not make or unmake the offence. The offence is already defined in the body of the Section. Proviso only incorporates certain conditions before a valid prosecution for the offence defined is launched. The point is that the offence defined has nothing to do with the proviso. The proviso does not prescribe the ingredients of the offence. It only prescribes the procedural formalities to be satisfied before the prosecution is launched. While considering whether the mandates of the proviso have been satisfied, it cannot be lost sight of that they are not ingredients of the offence but only procedural safeguards to help an inductee to avoid prosecution. If that be so the Court of Revision has to apply its mind to the question whether the alleged infraction of the procedure has resulted in miscarriage of justice".

16. The learned counsel for the respondent/complainant submits that the said observations may not represent the correct law. He submits that the same has been rendered without reference to the decisions of the Supreme Court in K. Bhaskaran v. Sankaran Vaidhyan Balan, 1999(4) RCR(Crl.) 309 (SC) : [1999 SC 3762], Sadanandan Bhadran v. Madhavan Sunil Kumar, 1998(4) RCR(Crl.) 90 (SC) : [AIR 1998 SC 3043] and SMS Pharmaceuticals Ltd. v. Neeta Bhalla 2005(4) R.C.R.(Criminal) 141 : 2005(3) Apex Criminal 229 : [(2005) 8 SCC 89]. The counsel contends that the opinion expressed in Bhaskaran Nair v. Abdul Kareem [2006(4) KLT 48] that the proviso to Section 138 do not make or unmake the offence has been rendered without reference to the above said decisions of the Supreme Court which declared that the ingredients of the proviso are also components/ingredients of the offence under Section 138 of the N.I. Act. The learned counsel for the respondent hence contends that the person who has signed the cheque is also liable under Section 141 notwithstanding the fact that he has ceased to be the secretary/office bearer on the date of dishonour of the cheque.
17. I am unable to accept the said submission of the learned counsel. Under Section 138 of the N.I. Act, the body of the Section declares the offence. Under Section 138 of the N.I. Act certain conduct or events expose the drawer to a deeming fiction. The specified person (the drawer of the cheque) shall be deemed to have committed the offence. Section 138 of the N.I. Act is extracted below.

"138. Dishonour of cheque for insufficiency, etc., of funds in the account. - Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both :

Provided that nothing contained in this section shall apply unless -

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or as the case may be, to the holder in due course of the cheque within fifteen days of the receipt of the said notice". (emphasis supplied)

18. It is evident from the language of Section 138 of the N.I. Act that the drawer is deemed to have committed the offence when a cheque issued by him of the variety contemplated under Section 138 is dishonoured for the reasons contemplated in the Section. The crucial words are "is returned by the bank unpaid". When that happens, such person shall be deemed to have committed the offence. With the deeming in the body of Section 138, the offence is already committed or deemed to have been committed. A careful reading of the body of Section 138 cannot lead to any other conclusion. Proviso to Section 138 according to me only insists on certain conditions precedent which have to be satisfied if the person who is deemed to have committed the offence were to be prosecuted successfully. The offence is already committed when the cheque is returned by the bank. But the cause of action for prosecution will be available to the complainant not when the offence is committed but only after the conditions precedent enumerated in the proviso are satisfied. After the offence is committed, only if the option given to avoid the prosecution under the proviso is not availed of by the offender, can the aggrieved person get a right or course of action to prosecute the offender. The offence is already deemed and declared but the offender can be prosecuted only when the requirements of the proviso are satisfied. The cause of action for prosecution will arise only when the period stipulated in the proviso elapses without payment. Ingredients of the offence have got to be distinguished from the conditions precedent for valid initiation of prosecution.
19. I am totally supported in this conclusion by the observations in paragraph 5 in Sadanandan Bhadran v. Madhavan Sunil Kumar, 1998(4) RCR(Crl.) 90 (SC) : [AIR 1998 SC 3043]. I extract the relevant portion in paragraph 5 below :

"On a careful analysis of the above section it is seen that its main part creates an offence when a cheque is returned by the bank unpaid for any of the reasons mentioned therein. The significant fact, however, is that the proviso lays down three conditions precedent to the applicability of the above Section and, for that matter, creation of such offence and the conditions are : (i) the cheque should have been presented to the bank within six months of its issue or within the period of its validity whichever is earlier; (ii) payee should have made a demand for payment by registered notice after the cheque is returned unpaid; and (iii) that the drawer should have failed to pay the amount within 15 days of the receipt of notice. It is only when all the above three conditions are satisfied that a prosecution can be launched for the offence under Section 138."

20. It is true that in paragraph 7 of Sadanandan Bhadran v. Madhavan Sunil Kumar as also in paragraph 2 of SMS Pharmaceuticals Ltd. v. Neeta Bhalla 2005(4) R.C.R.(Criminal) 141 : 2005(3) Apex Criminal 229 : (2005)8 SCC 89 and still earlier in K. Bhaskaran v. Sankaran Vaidhyan Balan, 1999(4) R.C.R.(Criminal) 309 : [AIR 1999 SC 3762] there are observations that all the five components/ingredients must be satisfied before a valid conviction can be entered. The following five elements have been held to be necessary for a proper prosecution. They are :

(1) drawal of the cheque

(2) presentation of the cheque to the bank.

(3) Returning of the cheque unpaid by the bank

(4) giving notice of demand to the drawer demanding payment of the cheque amount

(5) failure of the drawer to make the payment within thirty days of receipt of notice.

21. One cannot lose sight of the fact that these observations were not made by the Supreme Court while attempting to ascertain the precise date of commission of the offence under Section 138 of the N.I. Act. That was not the purpose of discussion in any of the decisions referred above. The court wanted to ascertain in Sadanandan Bhadran v. Madhavan Sunil Kumar whether there can be more than one cause of action for the complainant to prosecute the offender. In K. Bhaskaran v. Sankaran Vaidhyan Balan, the court had to decide which court had territorial jurisdiction to try the offence under Section 138 of the N.I. Act. In SMS Pharmaceuticals Ltd. v. Neeta Bhalla the observations were made generally while ascertaining personal liability of individuals under Section 141 when a company is the offender and certainly not for the purpose of ascertaining the precise point of time when the offence was committed.
22. The precise ascertainment of the date of the offence becomes important now for the purpose of considering the play of Section 141 of the N.I. Act. Different persons may be in charge of and responsible to the company for the conduct of its affairs on these different dates namely the date of drawal of cheque, date of presentation and dishonour of cheque, date of receipt of the notice of demand and the date on which the period of fifteen days would elapse. The whole crowd of persons who may be in charge of and responsible to the company for the conduct of its affairs, on these different dates cannot certainly be arrayed as accused successfully. The precise date of commission of the offence has got to be ascertained. It is in this context that I take note of the specific stipulation in the body of Section 138 of the N.I. Act. The offence under Section 138 of the N.I. Act shall be deemed to have been committed by the drawer of the cheque when the bank returns the same unpaid. The expression "is returned by the bank unpaid" must convey to the court that the precise offence can be said to be committed only on that crucial date. The proviso according to me gives only an option to the drawer of the cheque to avoid the prosecution. This has been stated very clearly by the Supreme Court in Rajaneesh Aggarwal v. Amit J. Bhalla [2001(1) SCC 631 paragraph 6] in the following words :

"the object of issuing notice indicating the factum of dishonour of cheques is to give an opportunity to the drawyer to make the payment within fifteen days so that it will not be necessary for the payee to proceed against any criminal action, even though the bank dishonours the cheques."

23. The offence is committed when the bank returns the cheque as unpaid. To prosecute the offender for the said offence, certain further formalities have got to be complied with and the complainant - payee or the holder in due course, shall get a cause of action to prosecute the offender for the offence already committed by him only when the requirements of the proviso are satisfied. Proviso deals with the conditions which have to be satisfied if the payee or the holder in due course were to get a right/cause of action to prosecute the offender who has committed the offence. The stipulations in the proviso must also be proved certainly before the offender can be successfully prosecuted. But in the strict sense they are not ingredients of the deemed offence under the body of Section 138 of the N.I. Act, though the said stipulations must also be proved to ensure and claim conviction. It is in this sense that it is said that N.I. Act. That is already done by the body of the Sections. This dispute as to whether the stipulations of the proviso are conditions precedent or ingredients/components of the offence under Section 138 of the N.I. Act may only be academic in most cases. Undoubtedly the ingredients stricto sensu as also the conditions precedent will have to be established satisfactorily in all cases. Of course in an appropriate case it may have to be considered whether substantial compliance of the conditions precedent can be reckoned to be sufficient to justify a conviction. Be that as it may, the distinction between the ingredients and conditions precedent is certainly real and existent. That distinction is certainly vital while ascertaining complicity of an inductee who faces indictment in a prosecution under Section 138 with the aid of Section 141 of the N.I. Act. That is how the question assumes such crucial significance here.
24. So reckoned, the offence under Section 138 of the N.I. Act must be held to be committed on that date when the bank on which the cheque is drawn returns the cheque unpaid for the reasons referred to in Section 138. That is the specific date/time of commission of the offence. Any interpretation which will make the date of commission of the offence uncertain is bound to create confusion when we attempt to work the law by interpreting Section 138 and 141 of the N.I. Act. I therefore come to the conclusion that the offence under Section 138 of the N.I. Act can be held to be committed only on the date when the cheque is returned unpaid by the bank.
25. If that be so, the person who has signed the cheque as the Secretary who was admittedly not the Secretary on the date on which the cheque was returned unpaid by the bank cannot be held to be in charge of and responsible to the company for the conduct of its affairs on the date when the offence was committed. Therefore the signatory/the then Secretary cannot be prosecuted under Section 138 read with Section 141 of the N.I. Act. The petitioners herein can hence claim no benefit or advantage on account of the conduct of the complainant not prosecuting the then Secretary/signatory of the cheque. The challenge raised on this ground must hence fail.
26. If the signatory/then Secretary is not the person in charge of and responsible to the company for the conduct of its affairs on the date of the offence (that is the date on which the cheque was returned unpaid by the bank), the Secretary on the date of such commission of the offence can theoretically be prosecuted successfully. The complainant herein did choose to prosecute the said Secretary though the Secretary was not arrayed as the third accused in his personal name. The acquittal of the said accused has already become final without challenge also. At any rate, the complainant cannot be found fault with for not prosecuting the person/incumbent Secretary and the attempt to claim any advantage on that basis by the petitioners cannot obviously succeed.
27. Moreover, the decision in Anil Hada v. Indian Acrylic Ltd., 2000(1) RCR(Crl.) 1 (SC) : [2000(1) SCC 1] makes the position crystal clear that the omission to prosecute the co-accused in a prosecution under Section 138 of the N.I. Act cannot deliver any advantage to the inductee facing prosecution. That was a case where the company was not prosecuted. The signatory of the cheque alone was prosecuted under Section 141 of the N.I. Act. The Supreme Court had considered the question and come to the conclusion that even when the company is not prosecuted, the prosecution of the person responsible to the company under Section 141 is not barred. If that be so, certainly the omission to prosecute another person though not a signatory who was in charge of and responsible to the company for the conduct of its affairs on the date of dishonour cannot also deliver any advantage to the petitioners herein. Prosecution of the company alone (i.e without prosecuting any person with the aid of Section 141) or prosecution of the person in charge under Section 141 or one of such persons only (i.e without prosecuting the company or other such persons including a co-signatory) cannot be held to be vital defects which would vitiate such prosecutions, in the absence of any special circumstances indicating prejudice against the accused.
28. I have been taken through the decision of a learned single Judge in Shaji v. Kerala State Co-operative Marketing Federation Ltd., 2004(4) R.C.R.(Criminal) 643 : [2006(2) KLT 289]. That decision, as the facts in that case reveal, can only be authority for the proposition that the prosecution of a person under Section 141 can continue and is not affected by his subsequent change in status vis-a-vis the company. That decision does not take into consideration the change in status between the date of drawal of the cheque and the date on which the cause of action arises on the lapse of thirty days from the date of receipt of the notice. The challenge raised on this third ground must also hence fail.
28. I now come to the fourth ground of challenge. The first petitioner Society has been sentenced to pay a fine of Rs. 5,000/- in both cases. The second accused president/signatory has been sentenced in both cases to undergo S.I for a period of six months. He has been sentenced to pay a fine of Rs. 5,000/- in the first case - relating to one cheque only. Default sentence has also been prescribed. In the second case, the second accused has further been directed to pay the balance cheque amount of Rs. 4,71,147/- as compensation. There is no default sentence imposed. Counsel prays that leniency may be shown on the question of sentence.
29. I have already adverted to the principles governing imposition of sentence in a prosecution under Section 138 of the N.I. Act in the decision reported in Anilkumar v. Shammi [2002(3) KLT 852]. In the facts and circumstances of the case, I find no compelling reasons which can persuade this court to insist on imposition of any deterrant substantive sentence of imprisonment on the second accused/petitioner. Leniency can certainly be shown to the second accused/petitioner. In both cases, he can be sentenced to undergo imprisonment till rising of court and to pay an amount of Rs. 5,000/- (Rupees five thousand only) each as fine and in default to undergo S.I for a period of fifteen days each.
30. So far as the first accused is concerned, I am satisfied that the sentence imposed in the second case relating to the three cheques can be modified. A direction to pay the entire balance amount outstanding - Rs. 4,71,147/- (Rupees four lakhs seventy one thousand one hundred and forty seven only) as compensation against the first accused shall meet the ends of justice ideally. No default sentence can be imposed. I am satisfied that it is not necessary to mulct the second accused with any personal liability to pay the outstanding amount as compensation or impose any default sentence on him.
31. Technically, the powers under Section 357(3) can be invoked only when the courts choose to impose a sentence of which fine does not form a part. The first accused is a company and therefore no substantive sentence of imprisonment can be imposed on the Company. But following the rationale in Standard Chartered Bank v. Directorate of Enforcement, 2005(2) R.C.R.(Criminal) 913 : 2005(2) Apex Criminal 176 : [2005(4) SCC 530] the mandate of Section 357(3) can certainly be read down as no sentence of imprisonement can ever be imposed on a company-a non natural fictional person. What is possible alone can be imposed on the company under Section 357(3) Cr.P.C. The powers under Section 357(3) can hence be invoked against a non natural person even when imposition of a substantive sentence of imprisonment is impossible. In these circumstances, I am satisfied that powers under Section 357(3) can be invoked against the first accused to direct payment of compensation under Section 357(3). The same can be recovered under Section 421 read with Section 431 Cr.P.C. The challenge raised in this revision petition can hence succeed only to the above limited extent.
32. In the result,

(a) these revision petitions are allowed in part.

(b) the impugned verdicts of guilty and conviction of accused 1 and 2 are upheld.

(c) But the sentence imposed is modified and reduced.

The second accused/president is sentenced in each case to undergo imprisonment till rising of court and to pay a fine of Rs. 5,000/- (Rupees five thousand only) each. In default of payment of fine, he shall undergo S.I for a period of fifteen days each. If realised, the entire amount of fine shall be released to the complainant and the same shall be credited to the expenses incurred in prosecuting this three tier criminal litigation.
33. The sentence imposed on the first accused society in C.C. No. 722/1998 (Crl.R.P. No. 85/06) is upheld. The sentence imposed in C.C. No. 723/1998 (Crl.R.P. No. 86/06) is set aside. No substantive sentence of fine is imposed. The first accused/petitioner is directed to pay an amount of Rs. 4,71,147/- (Rupees four lakhs seventy one thousand one hundred and forty seven only) along with interest at the rate of 6% per annum from 22/07/1998 as compensation under Section 357(3) Cr.P.C which shall be recovered by resort to Section 421 read with Section 431 Cr.P.C. I have already held in Crl.R.P. No. 3394 of 2006 that such a direction for payment of interest is permissible in view of Section 80 of the N.I. Act.
34. The second petitioner shall appear before the learned Magistrate on 30/11/2006 to serve the modified sentence hereby imposed. The learned Magistrate shall take immediate steps for recovery of the amounts due from the first accused if payment is not effected on or before 30/11/2006.
Petiton allowed.

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Dishonour of Cheque issued by company - Cheque signed by Secretary of company who ceased to be Secretary when cheque was dishonoured - Prosecution cannot be launched against Secretary as he was no more incharge and responsible to the company, posted on Geek Upd8﻿ thanks Advocate﻿ Avtar Singh Sidhu - http://g8.geekupd8.com/169